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Selling a Home Purchased with a VA Loan

While it's true that VA home loans differ from conventional loans in some ways, in others they are exactly the same. One of the most frequently asked questions about having a VA guaranteed mortgage has to do with the ability to sell the property. Is the veteran homeowner on a VA mortgage restricted in any way from selling the home?

For an outright sale of the property, the answer is no. And there are no restrictions on who you can sell to, either. Veterans can sell to non-veterans, active duty personnel can sell the home to civilians, etc. VA homeowners who are looking to sell their property can market it to any potential buyer and accept any kind of financing.

But if you want to sell the home by having the buyer assume the VA loan, the rules change.

The basics: Any VA loan closed after March 1, 1988 and offered on the market later on as a loan assumption purchase requires the buyer--the person assuming the VA mortgage--to have their qualifications reviewed and approved by either the lender, or the Department of Veterans Affairs. That typically means meeting credit, debt, income and other requirements necessary to show lenders you are a safe bet. In addition, not all lenders and servicers allow for VA loan assumptions.

In addition to the "approval rule," when the loan is successfully assumed on a VA loan closed after March 1, 1988, the veteran must contact the VA and request a release from liability on the assumed loan. Otherwise, the original borrower risks becoming liable to the government should the new owner of the home default on the assumed loan.

There is no approval process required for any VA loan originated prior to March 1 1988, and the seller is not required to contact the VA for a release of liability on the loan when the loan is older than 1 March 1988. Even so, Department of Veterans Affairs officials say when it comes to loan assumption procedures, it's a very good idea to contact the VA for a release of liability regardless of when the loan was originated.

Assumptions can be a big benefit during periods of higher interest rates. A loan assumption can be an attractive opportunity for buyers who don’t want to take out a new mortgage with a higher interest rate. Most conventional home loans do not allow for assumptions, which makes them a key benefit of VA loans.

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